Practice_Midterm_2_AK

Practice_Midterm_2_AK - ECN 162 International Economic...

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ECN 162 International Economic Relations University of California - Davis Ina Simonovska Fall 2010 Practice Midterm 2 Thursday, November 4 Part I: Multiple Choice Questions Choose the best answer. Explanation is not required. 1. Tariffs and quotas tend to be similar in their domestic welfare effects (a) if quota licenses are given to foreigners. (b) if quota license are auctioned. (c) if quota licenses are given to domestic firms. (d) Both (b) and (c). 2. __________ are a form of regional integration where member countries lower internal trade barriers but maintain existing barriers against nonmembers. (a) Customs unions (b) Free trade areas (c) Reciprocal trade agreements (d) None of the above. 3. The European Union (EU) is an example of a (a) customs union. (b) free trade area. (c) reciprocal trade agreement. (d) None of the above. 4. __________ is said to exist when the formation of a regional trading group leads to the reduction of trade with nonmember countries in favor of member countries. (a) Trade creation (b) Trade diversion (c) Trade exclusion (d) Trade distortion 5. __________ is said to exist when the formation of a regional trading group leads to an expansion of trade above pre-group levels. (a) Trade creation (b) Trade diversion (c) Trade exclusion (d) Trade distortion 6. The domestic currency is said to be if it has appreciated at a lower rate than the difference between the domestic inflation rate and the higher foreign inflation rate. (a) undervalued in the PPP sense (b) overvalued in the PPP sense (c) appreciated (d) risky 1
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A tariff can __________ raise a country’s welfare (a) never (b) sometimes (c) always 8. Like tariffs, quotas tend to lead to (a) higher prices and reduced imports. (b) increased government revenue. (c) increased consumer surplus. (d) All of the above. 9. __________ are profits that accrue to whomever has the right to import the quota restricted good. (a) Quota licenses (b) Quota rents (c) Quota prices (d) None of the above. 10. Given that real interest rates are constant, an increase in the expected rate of inflation will tend to (a) decrease the nominal rate of interest. (b) increase the nominal rate of interest. (c) cause lower inflation rates. (d) cause no change in the nominal rate of interest. 11. If you as a lender expect the real interest rate of 4% from making a loan and you set the nominal interest rate at 9%, then (a) you will benefit from this loan if the actual inflation rate turns out to be 14%. (b) your expected rate of inflation is 5%. (c) your expected rate of inflation is 13%. (d) you will be worse off if the actual inflation rate turns out to be 4%. Answer questions 12-13 based on the following diagram. 2
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Practice_Midterm_2_AK - ECN 162 International Economic...

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